Daily Report: EUR/USD, GBP/USD, USD/JPY And AUD/USD : August 21, 2013

The U.S. Dollar weakened against the majority of its forex peers as markets braced for the release of the Federal Reserve’s July policy meeting minutes, which will hopefully contain clues on the central bank’s the next steps. Uncertainty over whether the Fed will begin slowing down on month to month asset purchases dominated market sentiment during Tuesday’s subdued trading session. The Federal Reserve Bank of Chicago announced that its National Activity Index for July posted at -0.15 after a revised reading of -0.23 in June. Gold prices advanced for the fourth consecutive day as a somewhat weaker greenback raised the appeal of alternative assets. However, analysts say that many investors have lost faith in Gold as an investment, which is therefore predicted to sustain the biggest annual decline since 1997. Gold Futures for delivery in December climbed 0.3 percent and settled close to $1,370.00 an ounce on the New York Mercantile Exchange.

The Euro continued to rally versus the U.S. Dollar as global stocks slipped during the Asian session, suggesting that speculators were repatriating their assets from what’s referred to as the “emerging markets.” The 17-nation currency touched six-month highs against the greenback on concerns over the upcoming release of the Federal Reserve’s minutes. Demand for the Euro remained high days after the E.U. released data which showed the region expanded in the second quarter and emerged from its longest running recession. Economists explained that the Euro’s breakout may have also been caused by a drop in U.S. yields, as well as optimism over growth predictions for Germany. The Swiss Franc gained versus most of its trading counterparts as demand for refuge increased subsequent to a drop in global equities. The British Pound also advanced despite light volume on the Forex. The Pound continued to hover near two-month highs against the U.S. monetary unit, especially as the release of the Federal Reserve policy minutes approached. The Sterling was in high demand as the U.K. reported that Jobless Benefits claims went down while Retail Sales climbed, pointing to the fact that the economy was on a path to recovery.

The Yen gained versus the greenback but dipped slightly against the Euro. While there were no economic releases out of Japan, reports indicated that investors are hoping to receive news showing that the government has implemented the corporate tax cuts.

The Australian Dollar gained versus the U.S. currency and slumped after the Reserve Bank issued the minutes from the latest policy meeting, which indicated that the central bank may lower the cost of borrowing money, although not any time soon. If and when it does, officials said, it will take into account the direction in which the currency is moving. The New Zealand Dollar plunged after the governor of the RBNZ, Graeme Wheeler, issued comments which led investors to believe the bank won’t increase the benchmark interest rate as policy makers are discussing the possibility of restricting home loans.

EUR/USD-Euro Trades At 6-Month Highs
Many investors were surprised to see the Euro reach six-month highs against the U.S. Dollar, especially as trading volume on the Forex has been light due to the summer vacation period. However, analysts believe that the Euro’s hike in value was due to a number of factors. For starters, investors anticipate that the Federal Reserve will scale back on stimulus by as early as September. Secondly, U.S. ten-year Treasury yields are predicted to sustain their first drop in close to one week, weighing further on the greenback. And thirdly, in a speech delivered Tuesday, Finance Minister Schaeuble suggested that Germany’s GDP may expand from 0.5 to 0.7 percent, which was more than the government had previously forecast. His comments bolstered optimism in the region and raised speculation that tomorrow’s reports will reveal a higher PMI.

GBP/USD- Pound Receives Support
The British Pound seems to be comfortable hovering around two-month highs against the greenback and it received a slight boost as the Chicago Fed indicated that the U.S. economy continued to grow, though at a pace beneath its historical trend. Furthermore, market investors look ahead to the unveiling of the Fed’s Monetary Policy minutes. The Sterling was driven by flows into risk assets despite the lack of economic fundamentals. It gained versus a number of currencies given the recent string of positive data which suggested the Bank of England may consider raising the cost of borrowing money. Analysts believe this may not come about since the bank’s new governor, Mark Carney, stated that the rates would not be raised until the unemployment level came down to at least 7 percent.

USD/JPY-Yen Firms Up
The Yen strengthened against the U.S. Dollar as the latter was weighed down by uncertainty over how the central bank will gauge the recent economic data, and how it will factor it into stimulus. But the Yen’s gains were limited as the country encountered a number of challenges. Firstly, the nuclear plants damaged in the earthquake have been leaking into the ocean, which have not been properly contained. This dampened the government’s plans which included restarting some of the reactors in an effort to reduce the number of energy imports. Meanwhile, investors continued to wonder whether the proposal to lower corporate taxes will come about, as it’s one of Prime Minister Shinzo Abe’s key proposals for balancing a possible increase in sales tax. Mr. Abe stated that he is committed to drive the economy to recovery, especially after data indicated that exports surged the most since 2010, even though the deficit widened.

AUD/USD-RBA Issues Minutes
Australia’s Dollar slumped the most in one month and later extended losses after the Reserve Bank of Australia issued the most recent policy meeting minutes, which showed that policy makers agreed to leave the option for further rate cuts open. The minutes revealed that members were concerned with the value of the currency as it normally affects exports. Analysts believe that the language contained in the minutes suggests that the central bank is done with its easing bias and has adopted a new stance that includes taking into account the direction in which the currency is moving. The shifts in U.S. Treasury yields has grabbed the headlines and prompted the greenback to rally against the Aussie Dollar.

Today’s Outlook
Today’s economic calendar shows that the U.K. will report on CBI Industrial Trends Orders. The U.S. will issue data on Existing Home Sales and the FOMC will release the minutes from its recent Monetary Policy meeting. Lastly, China will publish the HSBC Manufacturing PMI.